The G-20 Financial Summit in Washington on Nov. 15 was held at a major crossroads in the history of the world’s economies. The summit brought together the world’s leading industrialized nations and the leaders of the emerging nations, such as China and India, that are playing an increasingly pivotal role in the global economy. No one expected a miracle or a quick fix for the current global economic miseries, but everyone was hoping to see reforms that would ultimately lead to market and financial stabilization.

This is now the time when we need to understand the critical decisions and actions adapted by the leaders to meet the challenges of the future. I have no pretence of knowing or even contemplating the outcome, nor can anyone forecast the pending eventualities. The G-20 pledged to:

Aggressively battle the global recession by agreeing not to pass restrictions on global trade;

Improve regulatory supervision of banks;

Implement stricter accounting standards; and

Employ oversight of the derivatives markets and synchronize tax cuts, lower interest rates and spending initiatives.

That strategy may have seemed rather convincing to the leaders. The markets, however, responded with utter skepticism to the practical effectiveness of this global strategy.

Following Lehman’s bankruptcy and the resulting total loss of confidence in the financial system, coordinated injections of trillions of dollars by various governments were expected to create a semblance of calmness, restore confidence and reestablish financial normalcy and stability in world markets. Instead, we saw the inevitable disappearance of trust which started out as one between banks, investors and corporations and now spread onto a diminishing trust between nations. For example, we have seen France call foul on Ireland over bank deposit guarantees; China call foul on the US saying it has destroyed the world economy with its currency and trade subsidy arrangements; Germany complaining of France’s plan to assist its industry; the UK chasing after Iceland to recover savings of US depositors, etc. As a result of this deteriorating trust among nations and their perceived lack of vision and unity, the G-20 Summit was called on to reestablish this trust and portray to the world an image of unison in goals and objectives.

The pendulum has thus swung away from the financial crisis to the increasingly gloomy economic situation as macro-economists became decidedly more negative on the economic outlook for the next several quarters as a result of the intensification of credit market stresses and evidence of spillover to the real economy. The World Bank has predicted an overall global growth rate in 2008 of one percent which in itself is a real problem. The IMF considers a global growth rate of 3 percent or less to be “equivalent to a global recession.”

Consequently, there is ample justification for pessimism. I would venture to add that global prospects will remain highly uncertain with risks of a global recession looming large. Just imagine, this global slowdown is expected to cause an additional 20 million people to become unemployed before the end of 2009 according to the International Labor Organization, and the number of people living in extreme poverty could increase by 40 million.

Against this background of deteriorating economic conditions worldwide, it was becoming more obvious that a broader policy response is needed, based on closer macroeconomic cooperation between the G-20 to restore growth and avoid potential new financial debacles as well as support emerging market economies.

In summary, no country in the entire world is immune from the current crisis and, I believe, the world is seriously dealing with a long-term process of economic and financial restructuring. The length and severity of the recession will depend on how quickly the G-20 react and pick up the pieces!

(Habib F. Faris, CEO & managing director of FinaVestment Ltd, London.)